HSBC 2008 Annual Report Download - page 78

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Customer groups > Global Banking and Markets
76
Management view of total operating income
2008
US$m
2007
US$m
2006
US$m
Global Markets18 ............... 2,676 5,720 6,059
Credit ............................ (5,502) (1,319) 931
Rates ............................. 2,033 1,291 1,207
Foreign exchange ......... 3,842 2,178 1,552
Equities ......................... (64) 1,177 721
Securities services ........ 2,116 1,926 1,378
Asset and structured
finance ....................... 251 467 270
Global Banking ................. 5,718 4,190 3,388
Financing and equity
capital markets ........... 3,572 2,186 1,730
Payments and cash
management ............... 1,665 1,632 1,257
Other transaction
services ....................... 481 372 401
Balance Sheet
Management ................. 3,618 1,226 713
Global Asset
Management ................. 934 1,336 1,061
Principal Investments ....... (415) 1,253 686
Other19 ............................... 1,066 1,555 1,730
Total operating income ..... 13,597 15,280 13,637
Comparative information has been adjusted to reflect the
current management view.
For footnotes, see page 143.
• Loan impairment charges and other credit risk
provisions of US$1.5 billion were higher
than in 2007, reflecting loan impairment
charges resulting from the deteriorating credit
environment, coupled with a relatively modest
impairment charge within the available-for-sale
portfolio, taken through the income statement
and detailed below.
• Within the Group’s available-for-sale portfolio,
continuing illiquidity in asset-backed securities
markets led to further write-downs. However,
due to the underlying credit quality and seniority
of the tranches held by HSBC, only a relatively
modest impairment charge of US$279 million
was identified on securities with a nominal
value of US$570 million and was taken to the
income statement. The expected cash flow
impairment on these securities was
US$86 million. A further US$293 million
impairment was absorbed by income note
holders who take the first loss on positions
within the securities investment conduits
(‘SIC’s) now consolidated in HSBC’s accounts.
Further details on the SICs are provided on
pages 174 to 179.
Business highlights in 2008
• The success of Global Banking and Markets’
two-year-old ‘emerging markets-led and
financing-focused’ strategy was recognised by
a number of key industry awards, including
‘Sterling Bond House’, ‘Islamic Bond House’,
‘Middle East Loan House’ and ‘Latin America
Bond House’ in International Financing
Review; ‘Best Emerging Markets Bank’, ‘Best
Investment Bank in the Middle East’ and ‘Best
Debt House in Europe’ in Euromoney; ‘Best
Bond House’ in Asia in FinanceAsia, Asiamoney
and The Asset; ‘Bond House of the Year’ in
Latin Finance; and ‘Emerging Markets Manager
of the Year’ in European Pensions.
• In Global Markets, foreign exchange revenues
rose by 76 per cent to a record US$3.8 billion
due to increased market volatility and higher
levels of customer activity. While foreign
exchange revenues rose in all regions,
performance was notably strong in Europe,
where revenues rose by 75 per cent
to US$1.4 billion, in the Rest of Asia-Pacific
region, and in North America, where revenues
more than doubled.
• The Rates business also reported record
revenues, reflecting increased customer activity
against a backdrop of greater market volatility.
• Securities services revenues grew despite the
lower interest rate environment, benefiting from
new customer flows and additional business
from existing customers. Assets under custody
decreased by 34 per cent to US$3.6 trillion,
driven by the downturn in the equity markets
and the net redemptions experienced across the
industry in the final quarter.
• Growth in Global Banking was driven by
improved margins in the credit and lending
business and substantial gains on credit default
swap transactions in certain portfolios.
Payments and cash management continued to
deliver revenue growth, primarily due to strong
growth in liability balances, although margins
narrowed in the latter part of the year.
• Balance Sheet Management income rose in
Europe, Asia and North America, reflecting
positioning ahead of rate reductions by a
number of central banks.
• In Principal Investments, markets remained
closed for realisations and certain private equity
holdings were marked down to reflect market
conditions.